Published on 26 Apr 2016
In our previous macroeconomics video, we said that the accumulation of physical capital only provides a temporary boost to economic growth. Does the same apply to human capital?
To answer that, consider this: what happens to all new graduates, in the end?
For a while, they’re productive members of the economy. Then age takes its toll, retirement rolls around, and eventually, the old workforce is replaced with a new infusion of people. But then, the cycle restarts. You get a new workforce, everyone’s productive for a while, and then they too retire.
Does this ring a bell?
It should, because this is similar to the depreciation faced by physical capital.
Similarly, are there diminishing returns to education? It likely wouldn’t pay off for everyone to have a PhD, or for everyone to master Einstein’s great theories.
That means the logic of diminishing returns, and the idea of a steady state, also applies to human capital.
So, now we can revise our earlier statement.
Now we can say that the accumulation of any kind of capital, only provides a temporary boost in economic growth. This is because all kinds of capital rust. So, one way or another, we’ll reach a point where new investments can only offset depreciation.
It’s the steady state, all over again.
However, what does the journey to steady state look like?
The Solow model predicts that poor countries should eventually catch up to rich countries, especially since they’re growing from a lower base. And given their quicker accumulation of capital, poorer nations should also grow faster, than their more developed neighbors.
And eventually, every country should reach similar steady states.
In other words, we would see growth tracks that all eventually converge.
So, why isn’t this always the case? Why, in some cases, are we seeing “Divergence, Big time,” as coined by economist Lant Pritchett?
The answer to these questions, lies in the institutions of different countries and the incentives they create.
Assuming that a certain set of countries do have similar institutions, that’s where we see the convergence predicted by the Solow model. We see that poorer countries do grow faster than their richer counterparts. And conditional on having similar institutions, eventually, even poorer countries will reach a similar steady state of output as more developed nations. We call this phenomenon conditional convergence.
You can think of it as a national game of catch-up, with catch-up only happening if institutions don’t differ.
What happens though, once all this catching up is done?
Let’s not forget that there’s still another variable in the Solow model. This is variable A: ideas — the subject of our next video.
There, we’ll show you how ideas can keep a country moving along the cutting edge of growth.
June 26, 2017
Human Capital & Conditional Convergence
What Latin Sounded Like – and how we know
Published on 12 Aug 2016
Classical Latin went extinct, yet we still know how to pronounce it. Proof!
Take a trip with me back to Catholic school, then back even further to old Rome. We’ll see what Latin pronunciation did – and did NOT – sound like in the mouths of the Romans. Thanks to ancient authors and modern Romance languages, we’ll even glimpse a range of evidence for the speech of Caesar and pauper alike!
SERMO VULGARIS ALL DAY LONG, am I right? 😉
“Ah, the Comeau case. Schwisberg says it could change everything – knock down all the barriers”
It’s ridiculous that 150 years into Confederation, and we still don’t have free trade within Canada:
If you’re on vacation abroad somewhere this summer and find yourself explaining to people over dinner what makes Canada so unique and special, use the story about Gerard Comeau and his beer run back in 2012. There is no more Canadian story than that.
Comeau is a Canadian who, looking for the best bargain he could, drove to a Canadian town a few miles from his home in Canada, bought 14 cases of beer and three bottles of liquor from Canadian beer and liquor stores, then returned to his home. In Canada.
A squad of plainclothes Mounties with binoculars, it turned out, had him under surveillance, according to his lawyer. On his way home from the Canadian town to his Canadian home, he was intercepted and handed a ticket for $292.50 by uniformed Canadian officers who then seized all the alcohol he’d purchased.
His Canadian crime: his beer run had crossed one of Canada’s internal borders. He’d driven from New Brunswick into Quebec. As far as New Brunswick was concerned, that made him a smuggler.
Sixteen other people were charged that day in the same sting operation, but Comeau had more spine than most and fought the ticket. Some smart lawyers from Ontario and Western Canada got involved, and – my god, I love it when things like this happen – he won.
A New Brunswick judge ruled that the province’s law against importing alcohol from other provinces violated the Constitution Act, Sec. 121, which states: All Articles of the Growth, Produce, or Manufacture of any one of the Provinces shall, from and after the Union, be admitted free into each of the other Provinces.
The ruling shocked New Brunswick and most of the other provinces, which consider Sec. 121 to be one of the most horrible and un-Canadian sentences in the Canadian Constitution, something that should be ignored at all costs.
Tank Chats #11 Valentine
Published on 24 Nov 2015
The eleventh in a series of short films about some of the vehicles in our collection presented by The Tank Museum’s historian David Fletcher MBE.
The Valentine – A popular and reliable British tank. It was designed and built by Vickers-Armstrongs Ltd., in 1938 and offered to the Army who accepted it for production shortly before the outbreak of war in 1939.
It made quite a name for itself in the North African campaign and also served with New Zealand forces in the Pacific and with Soviet troops on the Russian front.
http://tankmuseum.org/museum-online/vehicles/object-e1949-344
QotD: Psychiatric hospitals
It’s interesting that psychiatric hospitals are used as a cliche for “a situation of total chaos” – I think I’ve already mentioned the time when the director of a psych hospital I worked at told us, apparently without conscious awareness or irony, that if Obamacare passed our hospital would have too many patients and “the place would turn into a madhouse”. There’s a similar idiom around “Bedlam”, which comes from London’s old Bethlehem psychiatric hospital.
In fact, psych hospitals are much more orderly than you would think. Maybe 80% of the patients are pretty ‘with it’ – depressed people, very anxious people, people with anger issues who aren’t angry at the moment, people coming off of heroin or something. The remaining 20% of people who are very psychotic mostly just stay in their rooms or pace back and forth talking to themselves and not bothering anyone else. The only people you really have to worry about most of the time are the manic ones and occasionally severe autistics, and even they’re usually okay.
For a place where two dozen not-very-stable people are locked up in a small area against their will, violence is impressively rare. The nurses have to deal with some of it, since they’re the front-line people who have to forcibly inject patients with medication, and they have gotten burned a couple of times. And we doctors are certainly trained to assess for it, defuse it, and if worst comes to worst hold our own until someone can get help.
Yet in the two years I’ve worked at Our Lady Of An Undisclosed Location, years when each doctor has talked to each of their patients at least once a day, usually alone in an office, usually telling them things they really don’t want to hear like “No, you can’t go home today” – during all that time, not one doctor has been attacked. Not so much as a slap or a poke.
I am constantly impressed with how deeply the civilizing instinct has penetrated. When I go out of the workroom and tell Bob, “I’m sorry, but you’re disturbing people, you’re going to have to stop banging on the window and shouting threats, let’s go back to your room,” then as long as I use a calm, quiet, and authoritative voice, that is what he does. With very few exceptions, there is nobody so mentally ill that calmness + authority + the implied threat of burly security guards won’t get them to grumble under their breath but generally comply with your requests, reasonable or otherwise.
Scott Alexander, “Reflections From The Halfway Point”, Slate Star Codex, 2015-06-29.
